Adjudication: What's the verdict?

When people say adjudication has been a success, it is not always clear what they mean. Are they expressing surprise that it has proved as effective at resolving disputes? Or are they saying it has acted as Sir Michael Latham intended and freed money to cascade down the supply chain – the legal equivalent of a gallon of sulphuric acid poured down a blocked drain? What they probably do not mean is that it is a good way of administering justice. And, if pressed, they may admit that it's out of kilter with other trends in the industry. This tension between the success of adjudication and its fairness has been brought into focus by a slew of recent surveys, and by the DETR's decision to review the adjudication provisions of the Construction Act. In one of these surveys, now being compiled and published, solicitor Masons found that, out of a sample group of almost 600 industry members, only 16% said adjudication had failed. Yet 40% said the process was unfair and 44% thought it unreliable.

The report does not go into its respondents' reasons but they are not, perhaps, hard to guess. Here is what a main contractor wrote in another, as yet unpublished, survey, this time by Birmingham-based law firm Lee Crowder: "Adjudication is like going to play football at Old Trafford, MUFC on top form, you're only allowed five players, they have a glass screen in front of their goal, it's a penalty every time you touch the ball and the referee is a United fan. A complete joke." This respondent had lost two cases in the "more than £100,000" category, but concern about adjudication in its current form extends to more disinterested parties. Anthony Thornton, a judge in the Technology and Construction Court, says his concerns centre on the "procedural lack of safeguards, the speed of response, and the lack of redress, even when the adjudicator has made a completely mad decision".

Judge Thornton's worry about speed of response points to the inherent inequality between referrer and respondent. Nick Henchie, a solicitor at Rowe & Maw, tells of a contractor who started a £9m adjudication after encountering unforeseen ground conditions. "This is one of the most complex kinds of disputes," says Henchie, "and the contractor sent the adjudicator 12 lever-arch files, including expert testimony from two of the world's foremost experts, and topped it off with a CD-ROM presentation. It must have taken six months to prepare." The responding party then had seven days to say why it should not be made to part with £9m.

About half of those who filled in the Lee Crowder questionnaire said they had been "ambushed" by a referring party, with an unlucky third adding that this had happened more than once. A cynic might conclude that the other 50% was made up of those lurking in the bushes, because, in a sense, every adjudication is an ambush.

Rowe & Maw's Henchie gained some notoriety after writing a briefing note for clients in 1999 that advised the referring party, among other things, to make its attack when the other side was least expecting it. This, he says, is inevitable given the overwhelming wish of the referring party "to get their money as quickly and cheaply as possible". Of course, the respondent can ask for a time extension, and their opponent can refuse on the grounds that the adjudicator "already has enough information to make a decision in its favour". But a canny claimant will probably grant it; after all, what difference is another week going to make? Then there is the problem of the lack of safeguards. The Technology and Construction Court has shown a remarkable degree of judicial activism in its determination to enforce the wishes of parliament. This means that you are pretty much stuck with whatever the adjudicator decides – as long as they were within their jurisdiction, didn't make gross legal errors or commit an outrage against natural justice.

Defenders of the process respond that it is merely an interim measure – a way of keeping the show on the road pending a final decision by an arbitrator or a judge. But this is not necessarily so. Judge Thornton says: "Often it is a final determination. Very few cases go on beyond the adjudicator's decision. Those who unctuously say it's interim are ignoring practical realities." Masons' caseload supports this: only one in five of cases that it was involved with has continued after the adjudicator's decision. And even if it does, there is the obvious danger that the winner will go bust before the loser can get the dispute into court, or that the adjudicator's ruling will have permanent results, such as a huge amount of work being redone.

Philip Harris, a partner in lawyer Merricks and a supporter of adjudication, made this point in an article in Building (19 January, pages 60-61), adding that the courts may find themselves enforcing a decision that both parties, their counsel, the judge and everyone in the public gallery know is wrong. "It disturbs me as a lawyer," he says, adding: "And there are lots and lots of mistakes." Alongside these statutory problems with the process, two other issues have caused misgivings among contractors and their legal consultants. The first is the use of bespoke adjudication clauses inserted into a subcontract.

Bridgewater Construction vs Tolent Construction was a case that arose after main contractor Tolent wrote in a clause saying that whoever brought an adjudication would have to pay both sides' costs. The result was that the subcontractor had to pay £13,200 to recover £40,000. Delia Dumaresq, a barrister at Atkin Chambers and counsel for Bridgewater, says this clause was "clearly intended to stymie adjudication".

Her argument that it was an unfair contract term was not accepted by the court on the familiar grounds that public policy required it to give effect to parliament's wishes. "People are keeping quiet about that decision in the hope that nobody else will notice that clause," says Dumaresq - not a safeguard that will inspire confidence within the specialist community. Rudi Klein, chief executive of the Contractors Liaison Group, says that of 100 subcontracts chosen randomly by the CLG, all 100 contained bespoke clauses intended to fend off adjudication in some way.

The second issue is the apparent inconsistency between Latham's desire to keep money flowing down to subcontractors and the Egan report's support for improved site relations. "Adjudication," says Henchie, "is regarded as an underhand, dirty trick. Contractors who are adjudicated against get upset and say, 'Right, we'll blacklist them. They'll never work for us again.'" Henchie's point is that the process is being used instead of more conciliatory procedures, such as mediation. "People say: 'There's no downside here; what's my incentive for negotiating?" Henchie supports his case with statistics from the adjudicator nominating bodies, from which he extrapolates a figure of 30-40 new adjudications in every week of 2000, compared with three to four a week in 1998, the year in which the procedure was introduced. As Tony Bingham says, adjudication "is not working to preserve relations on site".

All of which begs the question: should we consider making some changes in the rules of a system that Henchie implies is out of control, and which Judge Thornton describes as, in some respects, "a real nightmare"? Klein thinks not. The success of adjudication, he says, can only be assessed by looking at the situation before its introduction. "The industry was run by a contractors' mafia, and the manipulation of the payment system in the industry was to a large extent fraudulent. And for the vast majority of firms, litigation or arbitration was a no-no, so they were kept out of justice. At least adjudication gives them a semblance of it." In other words, it may still be rough justice, but at least it is poetic rough justice.

Construction minister Nick Raynsford is currently consulting on possible amendments to the act and its accompanying scheme (the document used if no adjudication clauses are contained in a contract). The Construction Industry Board has assembled a task group to make recommendations to the minister. This report does indeed suggest changes.

It suggests that the problem highlighted by Tolent could be handled by incorporating the scheme into the act, thereby overriding questionable bespoke clauses. Klein says he expects this to happen by the middle of next year. It also tackles the time imbalance between case preparation and response, extending the time limit for the responding party from seven to 14 days.

However, the report doesn't recommend any change in the assessment of adjudicator quality, leaving this matter in the hands of the nominating bodies that accredit them. The statutory 28-day limit for the whole adjudication process – a constraint that Judge Thornton regards as too short, and even a robust defender of adjudication such as Bingham describes as "a fraction too tight" – looks set to stay, as does the lack of recourse for anyone aggrieved by an adjudicator's decision.

If this is all that changes, the result will be that the whole weight of the system will continue to be borne by the adjudicators themselves – and as Bingham says: "The people doing the adjudications tend to be good at fact and very poor at law." Judge Thornton believes that the nominating bodies ought to follow the Institute of Arbitrators and bring in more formal training procedures, and even Mr Justice Dyson, former chief judge of the Technology and Construction Court, is understood to have expressed concerns to the CIB about the quality of adjudicators.

If adjudicators continue to give decisions that a substantial minority of the industry regard as unreliable, the reputation of the process may decline to the point at which the courts feel they have to intervene, either by way of the fair trial provision of the Human Rights Act, or through a case that is appealed all the way to the House of Lords. Judge Thornton says the Lords would not be interested in making a judgment for at least five years. However, if unease with the system continues to accumulate, matters could come to a head if an adjudicator acting within his or her jurisdiction makes a "mad" decision. This could lead legal authorities to conclude that the system requires a more interventionist form of judicial review. In which case, even Lee Crowder's embittered main contractor may feel that, with a strengthened team, he can make more of a game of it.